U.S. Natgas Futures Rise as Cold Continues to Reduce Output

January 5, 2022 Reuters

U.S. natural gas futures edged up on Wednesday as freezing wells continued to reduce output in some producing regions and the weather was forecast to remain colder than normal through late January.

Front-month gas futures rose 5.3 cents, or 1.4%, to $3.770 per million British thermal units (mmBtu) at 8:17 a.m. EST (1317 GMT).

In the spot market, next-day gas at the Waha hub in the West Texas Permian producing area rose over the U.S. Henry Hub benchmark in Louisiana for the first time since September 2021 as cold weather continues to freeze wells and cause some gas processing equipment to fail.

Over the New Year’s weekend when overnight low temperatures dropped to the mid teens Fahrenheit (-9 C) in West Texas, well freeze-offs and equipment problems caused the state’s gas output to fall by over 1 billion cubic feet per day (bcfd) to its lowest since last February’s freeze left millions without power and heat for days.

Around the world, meanwhile, global gas prices have repeatedly reached all-time highs in recent months – most recently during the week before Christmas – as utilities scramble for liquefied natural gas (LNG) cargoes from the United States and elsewhere to replenish low stockpiles in Europe and meet surging demand in Asia. European gas prices were up about 5% on Wednesday.

U.S. futures, which followed prices in Europe about two-thirds of the time during the fourth quarter of 2021, jumped to a 12-year high of more than $6 per mmBtu in early October. Since then, however, U.S. prices have retreated because the United States has ample production and plenty of gas in storage for winter.

Analysts have said European inventories were about 20% below normal for this time of year, compared with about 1% above normal in the United States. Global gas was currently trading about eight times higher than in the United States.

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Data provider Refinitiv said average gas output in the U.S. Lower 48 states dropped from a record 97.6 bcfd in December to 94.5 bcfd so far in January due to well freeze-offs and other cold weather-related equipment problems in Texas and other producing states this week.

Refinitiv projected average U.S. gas demand, including exports, would rise from 128.4 bcfd this week to 134.0 bcfd next week as homes and businesses crank up their heaters. The forecast for next week was a little lower than Refinitiv’s outlook on Tuesday.

The amount of gas flowing to U.S. LNG export plants eased to an average of 12.0 bcfd so far in January from a record 12.2 bcfd in December.

With gas prices around $32 per mmBtu in Europe and $33 in Asia, compared with just about $4 in the United States, traders said buyers around the world would keep purchasing all the LNG the United States can produce.

But no matter how high global gas prices rise, the United States only has the capacity to turn about 12.2 bcfd of gas into LNG.

Global markets will have to wait until later this year for some of the 18 liquefaction trains under construction at Venture Global LNG’s Calcasieu Pass in Louisiana to start producing LNG. The plant has been pulling in small amounts of feed gas since around September as it prepares to begin operating.